Edgar Filing: CHUNGHWA TELECOM CO LTD

June 30

United States of America - New York (US$1,188 thousand and US$2,314 thousand for 2010 and 2009, respectively)

Form 6-K

1934 Act Registration No. 1-31731

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

Dated August 26, 2010

Chunghwa Telecom Co., Ltd.

(Translation of Registrant’s Name into English)

21-3 Hsinyi Road Sec. 1,

Taipei, Taiwan, 100 R.O.C.

(Address of Principal Executive Office)

(Indicate by check mark whether the registrant files or will file annual reports under cover of form 20-F or Form 40-F.)

Form 20-F x Form 40-F

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes No x

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant Chunghwa Telecom Co., Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: 2010/08/26


Chunghwa Telecom Co., Ltd.

By:		/S/ SHU YEH
Name:		Shu Yeh
Title:		Senior Vice President CFO

Exhibit


Exhibit		Description

1		Press Release to Report Operating Results for the First Half of 2010

2		Financial Statements for the Six Months Ended June 30, 2010 and 2009 and Independent Accountants’ Review Report (Stand Alone)

3		Consolidated Financial Statements for the Six Months Ended June 30, 2010 and 2009 and Independent Accountants’ Review Report

4		GAAP Reconciliations of Consolidated Financial Statements for the Six Months Ended June, 2010 and 2009

Exhibit 1

LOGO

Chunghwa Telecom Reports Operating Results for

the Second Quarter and First Half of 2010

Taipei, Taiwan, R.O.C. August 26, 2010 - Chunghwa Telecom Co., Ltd. (TAIEX: 2412, NYSE: CHT) (“Chunghwa” or “the Company”), today reported its operating results for the second quarter and first half of 2010. All figures were presented on a consolidated basis and prepared in accordance with generally accepted accounting principles in the Republic of China (“ROC GAAP”).

Dr. Shyue-Ching Lu, Chairman of Chunghwa Telecom, said, “I am pleased to report another quarter of solid results, boosted by the continuing economic recovery and the execution of our marketing initiatives. Despite the mandated National Communications Commission (“NCC”) tariff reduction effective April 1 this year, consolidated revenue increased 3.3% to NT$49.7 billion during the second quarter of 2010, mainly due to higher handset sales and increased revenue from both mobile value-added services (“VAS”) and Internet services. Our prudent cost management initiatives enabled us to deliver stable operating income, and the income tax reduction from 25% to 17% starting from 2010 resulted in a 12.7% year-over-year rise in net income to NT$12.9 billion.”

(Comparisons, unless otherwise stated, are to the prior year period)

Financial Highlights for the Second Quarter of 2010:

Total consolidated revenue increased by 3.3% to NT$49.7 billion

Mobile communications business revenue increased by 6.5% to NT$22.1 billion; mobile value added revenue increased by 31.4% to NT$2.7 billion

Internet business revenue increased by 7.0% to NT$6.0 billion

Domestic fixed communications business revenue decreased by 1.1% to NT$17.3 billion; broadband access revenue increased by 1.9% to NT$5.0 billion

International fixed communications business revenue decreased by 2.3% to NT$3.7 billion

Total operating costs and expenses increased by 4.9% to NT$34.8 billion

Net income totaled NT$12.9 billion, representing an increase of 12.7%

Basic earnings per share (EPS) increased by 12.7% to NT$1.34

Financial Highlights for the First Half of 2010:

Total consolidated revenue increased by 2.2% to NT$99.3 billion

Mobile communications business revenue increased by 4.2% to NT$44.3 billion

Internet business revenue increased by 4.5% to NT$11.9 billion

Domestic fixed communications business revenue decreased by 2.0% to NT$34.5 billion; broadband access revenue increased by 1.5% to NT$10.1 billion

International fixed communications business revenue increased by 3.4% to NT$7.7 billion

Total operating costs and expenses increased by 2.0% to NT$69.5 billion

Net income totaled NT$25.0 billion, representing an increase of 12.3%

Basic EPS increased by 12.3% to NT$2.58

Revenue

Chunghwa’s total consolidated revenue for the second quarter of 2010 increased by 3.3% year-over-year to NT$49.7 billion, of which 34.9% was from its domestic fixed business, 44.5% was from its mobile business, 12.2% was from its Internet business, 7.5% was from its international fixed business and the remainder was from other business segments. The primary reasons for the year-over-year increase were the economic recovery and the Company’s marketing efforts.

Domestic fixed line business revenue totaled NT$17.3 billion, representing a decrease of 1.1% year-over-year. Of this, local revenues decreased by 2.2% year over year to NT$8.1 billion, mainly due to mobile and Voice over Internet Protocol (VOIP) substitution. The 12.6% decline in domestic long-distance revenues to NT$1.7 billion was also due to mobile and VOIP substitution, and the interconnection fee adjustment at the end of 2009.

Broadband access revenue, including ADSL and FTTx, increased by 1.9% year over year to NT$5.0 billion. Although ADSL access revenue decreased as more ADSL subscribers migrated to fiber solutions, the decrease was fully offset by growth in FTTx access revenue. Chunghwa believes that this migration will continue as customers continue to demand increased bandwidth, and that broadband revenue will therefore increase over time.

Mobile revenue increased by 6.5% year over year to NT$22.1 billion, mainly due to growth in handset sales and mobile VAS revenue related to our smartphone promotion.

Internet revenue increased by 7.0% to NT$6.0 billion, mainly attributable to Internet services growth, which was driven by the increase in broadband subscribers and the migration of ADSL subscribers to fiber solutions.

International fixed line revenue decreased by 2.3% to NT$3.7 billion, mainly due to VOIP substitution and market competition that was partially offset by growth in leased line revenue.

Finally, other revenue increased by 47.9% to NT$0.5 billion in the second quarter of 2010 compared to the same period of 2009, primarily due to the consolidation of subsidiaries.

For the first half of 2010, total revenue was NT$99.3 billion, a 2.2% increase from the same period last year. Of this amount, the domestic fixed business 34.8%, the mobile business contributed 44.7%, the internet business 12.0%, the international fixed business 7.7%, and the remainder was from others.

Costs and Expenses

Total operating costs and expenses for the second quarter of 2010 were NT$34.8 billion, an increase of 4.9% year-over-year, mainly due to the increased cost of handset sales and the performance-based bonus accrual that is related to the net income growth.

Total operating costs and expenses for the first half of 2010 increased 2.0% year over year to NT$69.5 billion, due to the same reason.

Income Tax

Income tax expenses for the second quarter of 2010 were NT$1.9 billion, representing a decrease of 44.9% compared to the same period of 2009. This decrease resulted from the government’s income tax rate reduction from 25% to 17% this year. Effect of tax rate reduction from 20% to 17 % for the first quarter 2010 income tax expenses was fully reflected in the second quarter.

EBITDA/Operating income/Net Income

Operating income for the second quarter of 2010 remained flat year-over-year at NT$14.9 billion. EBITDA decreased by 2.3% to NT$23.5 billion, primarily as a result of the mandated NCC tariff reduction and changing cost structure. The Company’s EBITDA margin and operating income margin for the second quarter of 2010 were 47.3% and 30.0%, respectively, compared to 50.1% and 31.1%, respectively, for the same period of 2009.

Net income for the second quarter of 2010 increased by 12.7% year-over-year to NT$12.9 billion, primarily due to revenue growth and the lower income tax rate.

For the first half of 2010, operating income amounted to NT$29.8 billion, a rise of 2.6% year over year. EBITDA decreased slightly by 0.7% to NT$47.1 billion. Net income reached NT$25.0 billion, a 12.3% increase, mainly due to the income tax rate reduction.

Capital Expenditure (“Capex”)

Total capex for the second quarter of 2010 amounted to NT$5.2 billion, representing a decrease of 7.8% year-over-year. Of the NT$5.2 billion in capex, 63.1% was spent on the domestic fixed communications business, 23.1% on the mobile communications business, 6.8% on the Internet business, 4.8% on the international fixed communications business and the remainder was used for other purposes.

Cash Flow

Cash flow from operating activities for the second quarter of 2010 was NT$17.3 billion, a 5.2% decrease compared to the same period of 2009.

As of June 30, 2010, the Company’s cash and cash equivalents totaled NT$92.8 billion, an increase of 11.2% year-over-year, still showing a strong cash position.

Businesses Performance Highlights:

Domestic Fixed/Broadband/HiNet Business

n	As of the end of June 2010, the Company maintained its leading fixed-line market position, with fixed-line subscribers totaling 12.4 million.

Total broadband subscribers amounted to 4.3 million as of June 30, 2010, accounting for 82.2% of market share. Chunghwa continued its efforts to migrate ADSL subscribers to FTTx solutions. By the end of the second quarter of 2010, there were 1.85 million FTTx subscribers, accounting for 42.8% of Chunghwa’s total broadband subscriber base. By the end of the second quarter of 2010, the number of ADSL and FTTx subscribers with a service speed greater than 8 Mbps reached 2.2 million, representing 50.9% of total broadband subscribers, compared to 48.8% at the end of the first quarter of 2010.

n	HiNet subscribers totaled 4.07 million at the end of the second quarter of 2010.

n	MOD subscriber number is over 720 thousand up to now.

Mobile Business

n	As of June 30, 2010, Chunghwa had 9.4 million mobile subscribers, an increase of 4.5% compared to 9.0 million at the end of the first half of 2009.

n	Chunghwa had 5.1 million 3G subscribers at the end of June 2010, accounting for 53.9% of its total subscriber base.

n	Mobile VAS revenue for the first half of 2010 increased 27.6% year-over-year to NT$5.2 billion; Short Message Service revenue rose 6.9% year-over-year and mobile Internet revenue increased 78% year-over-year.

n	Smartphone subscription accounted for 17% of total handsets offered by the Company during the first half of 2010. Smartphone Average Revenue per User (“ARPU”) was 132% higher than blended ARPU for the same period.

Financial Statements

Financial statements and additional operational data can be found on the Company’s website at www.cht.com.tw/ir/filedownload.

Note Concerning Forward-looking Statements

Except for statements in respect of historical matters, the statements made in this press release contain “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of Chunghwa to be materially different from what may be implied by such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, among other things: extensive regulation of the telecom industry; the intensely competitive telecom industry; Chunghwa’s relationship with its labor union; general economic and political conditions, including those relating to the telecom industry; possible disruptions in commercial activities caused by natural and human induced events and disasters, including terrorist activity, armed conflict and highly contagious diseases, such as Severe Acute Respiratory Syndrome; and those risks identified in the section entitled “Risk Factors” in Chunghwa’s annual reports on Form F-20 filed with the SEC.

The forward-looking statements in this press release reflect the current belief of Chunghwa as of the date of this press release. The Company undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to the date of this press release.

About Chunghwa Telecom

Chunghwa Telecom (TAIEX 2412, NYSE: CHT) is Taiwan’s leading telecom service provider. It provides fixed-line, mobile and Internet services to residential and business customers in Taiwan.


Contact:		Fu-fu Shen

Phone:		+886 2 2344 5488

Email:		chtir@cht.com.tw

Exhibit 2

Chunghwa Telecom Co., Ltd.

Financial Statements for the

Six Months Ended June 30, 2010 and 2009 and

Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

To The Board of Directors and Stockholders of

Chunghwa Telecom Co., Ltd.

We have audited the accompanying balance sheets of Chunghwa Telecom Co., Ltd. as of June 30, 2010 and 2009, and the related statements of income, changes in stockholders’ equity and cash flows for the six months ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Taiwan International Standard Electronics Co., Ltd., Viettel-CHT Co., Ltd. and equity-accounted investee of SENAO of Senao Networks, Inc. The aggregate carrying values of these equity method investees were NT$864,047 thousand and NT$661,122 thousand, respectively, as of June 30, 2010 and 2009 and the equity in earnings (losses) were NT$100,723 thousand and NT$(21,400) thousand, respectively, for the six months ended June 30, 2010 and 2009, respectively. The financial statements of Taiwan International Standard Electronics Co., Ltd., Viettel-CHT Co., Ltd. and equity-accounted investee of SENAO of Senao Networks, Inc. as of and for the six months ended June 30, 2010 and 2009, were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these equity method investees, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the financial reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of the Company as of June 30, 2010 and 2009, and the results of their operations and cash flows for the six months then ended in conformity with the Securities and Exchange Act, the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.

As discussed in Note 3 to the financial statements, the Company early adopted the new Statements of Financial Accounting Standards No. 41, “Operating Segments” (“SFAS No. 41”) beginning from September 1, 2009.

We have also audited the consolidated financial statements of the Company and its subsidiaries as of and for the six months ended June 30, 2010 and 2009, and have expressed a modified unqualified opinion on those consolidated financial statements.

/s/ DELOITTE & TOUCHE

Deloitte & Touche

Taipei, Taiwan

The Republic of China

August 11, 2010

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS

JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Par Value Data)


	2010			2009
	Amount		%	Amount		%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)	$	87,041,371	20	$	78,572,933	17
Financial assets at fair value through profit or loss (Notes 2 and 5)		—	—		22,423	—
Available-for-sale financial assets (Notes 2 and 6)		5,599,108	1		16,354,375	4
Held-to-maturity financial assets (Notes 2 and 7)		1,190,089	—		670,541	—
Trade notes and accounts receivable, net of allowance for doubtful accounts of $2,688,665 thousand in 2010 and $2,853,031 thousand in 2009 (Notes 2 and 8)		11,191,243	3		10,300,053	2
Receivables from related parties (Note 23)		305,995	—		217,058	—
Other monetary assets (Notes 2, 9 and 25)		2,653,656	1		3,246,786	1
Inventories, net (Notes 2, 3 and 10)		866,496	—		837,141	—
Deferred income tax assets (Notes 2 and 20)		35,636	—		74,196	—
Other current assets (Note 11)		5,915,568	1		5,335,560	1

Total current assets		114,799,162	26		115,631,066	25

LONG-TERM INVESTMENTS
Investments accounted for using equity method (Notes 2 and 12)		10,209,904	2		8,482,350	2
Financial assets carried at cost (Notes 2 and 13)		2,294,648	1		2,236,048	1
Held-to-maturity financial assets (Notes 2 and 7)		6,948,228	2		4,536,191	1
Other monetary assets (Notes 14 and 24)		1,000,000	—		1,000,000	—

Total long-term investments		20,452,780	5		16,254,589	4

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 15 and 23)
Cost
Land		101,292,062	23		101,259,764	22
Land improvements		1,538,691	—		1,513,208	—
Buildings		65,695,722	15		62,686,423	14
Computer equipment		15,408,439	3		15,434,463	3
Telecommunications equipment		655,365,545	146		652,387,793	143
Transportation equipment		1,972,585	—		2,243,028	1
Miscellaneous equipment		6,985,801	2		7,159,198	2

Total cost		848,258,845	189		842,683,877	185
Revaluation increment on land		5,800,909	1		5,810,342	1

		854,059,754	190		848,494,219	186
Less: Accumulated depreciation		562,610,473	125		549,671,350	121

		291,449,281	65		298,822,869	65
Construction in progress and advances related to acquisition of equipment		10,991,199	2		14,212,625	3

Property, plant and equipment, net		302,440,480	67		313,035,494	68

INTANGIBLE ASSETS (Note 2)
3G concession		6,363,175	1		7,111,783	2
Others		347,278	—		356,524	—

Total intangible assets		6,710,453	1		7,468,307	2

OTHER ASSETS
Idle assets (Note 2)		878,896	—		926,640	—
Refundable deposits		1,389,649	—		1,288,994	1
Deferred income tax assets (Notes 2 and 20)		342,824	—		1,195,223	—
Others (Note 23)		3,310,929	1		860,916	—

Total other assets		5,922,298	1		4,271,773	1

TOTAL	$	450,325,173	100	$	456,661,229	100

(Continued)

CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS

JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Par Value Data)


	2010				2009
	Amount			%	Amount			%
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2 and 5)	$	23,656		—	$	—		—
Trade notes and accounts payable		5,724,762		1		5,608,657		1
Payables to related parties (Note 23)		1,536,006		—		1,464,771		—
Income tax payable (Notes 2 and 20)		4,672,688		1		6,523,855		2
Accrued expenses (Note 16)		11,169,742		2		12,939,389		3
Dividends payable (Note 18)		39,369,041		9		37,138,775		8
Other current liabilities (Note 17)		15,802,629		4		15,214,391		3

Total current liabilities		78,298,524		17		78,889,838		17

DEFERRED INCOME		2,542,574		1		2,145,289		1
RESERVE FOR LAND VALUE INCREMENTAL TAX (Note 15)		94,986		—		94,986		—
OTHER LIABILITIES
Accrued pension liabilities (Notes 2 and 22)		1,240,197		—		5,183,644		1
Customers’ deposits		5,886,625		1		6,047,305		1
Deferred credit - profit on intercompany transactions (Note 23)		1,485,916		1		1,485,916		1
Others		396,359		—		260,875		—
Total other liabilities		9,009,097		2		12,977,740		3

Total liabilities		89,945,181		20		94,107,853		21

STOCKHOLDERS’ EQUITY (Notes 2, 6, 15 and 18)
Common stock - $10 par value;
Authorized: 12,000,000 thousand shares
Issued: 9,696,808 thousand shares		96,968,082		21		96,968,082		21

Capital stock to be issued		—		—		9,696,808		2

Additional paid-in capital
Capital surplus		169,496,289		38		169,496,289		37
Donated capital		13,170		—		13,170		—
Equity in additional paid-in capital reported by equity-method investees		6,742		—		3		—

Total additional paid-in capital		169,516,201		38		169,509,462		37

Retained earnings
Legal reserve		61,361,255		14		56,987,241		12
Special reserve		2,675,894		1		2,675,894		1
Unappropriated earnings		24,998,325		5		22,265,116		5

Total retained earnings		89,035,474		20		81,928,251		18

Other adjustments
Cumulative translation adjustments		12,059		—		17,765		—
Unrecognized net loss of pension		(44,105	)	—		(5	)	—
Unrealized loss on financial instruments		(911,165	)	—		(1,379,866	)	—
Unrealized revaluation increment		5,803,446		1		5,812,879		1

Total other adjustments		4,860,235		1		4,450,773		1

Total stockholders’ equity		360,379,992		80		362,553,376		79

TOTAL	$	450,325,173		100	$	456,661,229		100

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche audit report dated August 11, 2010)

(Concluded)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Earnings Per Share Data)


	2010			2009
	Amount		%	Amount		%
NET REVENUES (Note 23)	$	91,772,655	100	$	90,301,418	100
OPERATING COSTS (Note 23)		47,499,697	52		46,704,834	52

GROSS PROFIT		44,272,958	48		43,596,584	48

OPERATING EXPENSES (Note 23)
Marketing		11,965,629	13		11,987,497	13
General and administrative		1,679,541	2		1,694,373	2
Research and development		1,541,309	2		1,525,698	2

Total operating expenses		15,186,479	17		15,207,568	17

INCOME FROM OPERATIONS		29,086,479	31		28,389,016	31

NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net		356,261	1		123,119	—
Interest income		189,850	—		324,528	1
Foreign exchange gain, net		144,459	—		86,098	—
Dividends income		3,600	—		2,498	—
Valuation gain on financial instruments, net		—	—		146,918	—
Others		129,567	—		285,545	—

Total non-operating income and gains		823,737	1		968,706	1

NON-OPERATING EXPENSES AND LOSSES
Interest expense		75,472	—		2,775	—
Valuation loss on financial instruments, net		34,787	—		—	—
Loss on disposal of financial instruments, net		18,211	—		234,095	—
Loss on disposal of property, plant and equipment		13,139	—		9,138	—
Impairment loss on assets		—	—		85,349	—
Others		14,400	—		99,631	—

Total non-operating expenses and losses		156,009	—		430,988	—

INCOME BEFORE INCOME TAX		29,754,207	32		28,926,734	32
INCOME TAX EXPENSES (Notes 2 and 20)		4,762,789	5		6,665,332	7

NET INCOME	$	24,991,418	27	$	22,261,402	25

(Continued)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Earnings Per Share Data)


	2010				2009
	Income Before Income Tax		Net Income		Income Before Income Tax		Net Income
EARNINGS PER SHARE (Note 21)
Basic earnings per share	$	3.07	$	2.58	$	2.98	$	2.30

Diluted earnings per share	$	3.06	$	2.57	$	2.97	$	2.29

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche audit report dated August 11, 2010)

(Concluded)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Dividend Per Share Data)


																		Other Adjustments
	Common Stock			Preferred Stock							Retained Earnings							Cumulative Translation Adjustments		Unrecog- nized Net Loss of Pension			Unrealized Gain (Loss) on Financial Instruments			Unrealized Revaluation Increment		Total Stockholders’ Equity
	Shares (Thousands)	Amount		Shares (Thousands)	Amount		Capital Stock to Be Issued		Additional Paid-in Capital		Legal Reserve		Special Reserve		Unappropriated Earnings			Cumulative Translation Adjustments		Unrecog- nized Net Loss of Pension			Unrealized Gain (Loss) on Financial Instruments			Unrealized Revaluation Increment		Total Stockholders’ Equity
BALANCE, JANUARY 1, 2010	9,696,808	$	96,968,082	—	$	—	$	—	$	169,509,763	$	56,987,241	$	2,675,894	$	43,749,962		$	7,626	$	(43,750	)	$	(447,129	)	$	5,803,446	$	375,211,135
Appropriation of 2009 earnings
Legal reserve	—		—	—		—		—		—		4,374,014		—		(4,374,014	)		—		—			—			—		—
Cash dividends - NT$4.06 per share	—		—	—		—		—		—		—		—		(39,369,041	)		—		—			—			—		(39,369,041	)
Net income for the six months ended June 30, 2010	—		—	—		—		—		—		—		—		24,991,418			—		—			—			—		24,991,418
Unrealized loss on financial instruments held by investees	—		—	—		—		—		—		—		—		—			—		—			(45,861	)		—		(45,861	)
Equity adjustments in investees	—		—	—		—		—		6,438		—		—		—			—		—			—			—		6,438
Cumulative translation adjustment for foreign-currency investments held by investees	—		—	—		—		—		—		—		—		—			4,433		—			—			—		4,433
Defined benefit pension plan adjustments of investees	—		—	—		—		—		—		—		—		—			—		(355	)		—			—		(355	)
Unrealized loss on financial instruments	—		—	—		—		—		—		—		—		—			—		—			(418,175	)		—		(418,175	)

BALANCE, JUNE 30, 2010	9,696,808	$	96,968,082	—	$	—	$	—	$	169,516,201	$	61,361,255	$	2,675,894	$	24,998,325		$	12,059	$	(44,105	)	$	(911,165	)	$	5,803,446	$	360,379,992

(Continued)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Except Dividend Per Share Data)


																			Other Adjustments
	Common Stock			Preferred Stock								Retained Earnings							Cumulative Translation Adjustments			Unrecog- nized Net Loss of Pension			Unrealized Gain (Loss) on Financial Instruments			Unrealized Revaluation Increment			Total Stockholders’ Equity
	Shares (Thousands)	Amount		Shares (Thousands)	Amount		Capital Stock to Be Issued		Additional Paid-in Capital			Legal Reserve		Special Reserve		Unappropriated Earnings			Cumulative Translation Adjustments			Unrecog- nized Net Loss of Pension			Unrealized Gain (Loss) on Financial Instruments			Unrealized Revaluation Increment			Total Stockholders’ Equity
BALANCE, JANUARY 1, 2009	9,696,808	$	96,968,082	—	$	—	$	—	$	179,206,270		$	52,859,566	$	2,675,894	$	41,276,274		$	29,474		$	(84	)	$	(2,272,242	)	$	5,813,187		$	376,556,421
Adjustment of additional paid-in capital from revaluation of land to income upon disposal	—		—	—		—		—		—			—		—		—			—			—			—			(308	)		(308	)
Appropriation of 2008 earnings
Legal reserve	—		—	—		—		—		—			4,127,675		—		(4,127,675	)		—			—			—			—			—
Cash dividends - NT$3.83 per share	—		—	—		—		—		—			—		—		(37,138,775	)		—			—			—			—			(37,138,775	)
Cancellation of preferred stock (Note 18)	—		—	—		—		—		—			—		—		—			—			—			—			—			—
Capital surplus transferred to common stock	—		—	—		—		9,696,808		(9,696,808	)		—		—		—			—			—			—			—			—
Net income for the six months ended June 30, 2009	—		—	—		—		—		—			—		—		22,261,402			—			—			—			—			22,261,402
Unrealized gain on financial instruments held by investees	—		—	—		—		—		—			—		—		—			—			—			7,773			—			7,773
Equity adjustments in investees	—		—	—		—		—		—			—		—		(6,110	)		—			—			—			—			(6,110	)
Cumulative translation adjustment for foreign-currency investments held by investees	—		—	—		—		—		—			—		—		—			(11,709	)		—			—			—			(11,709	)
Defined benefit pension plan adjustments of investees	—		—	—		—		—		—			—		—		—			—			79			—			—			79
Unrealized gain on financial instruments	—		—	—		—		—		—			—		—		—			—			—			884,603			—			884,603

BALANCE, JUNE 30, 2009	9,696,808	$	96,968,082	—	$	—	$	9,696,808	$	169,509,462		$	56,987,241	$	2,675,894	$	22,265,116		$	17,765		$	(5	)	$	(1,379,866	)	$	5,812,879		$	362,553,376

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche audit report dated August 11, 2010)

(Concluded)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars)


	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	24,991,418		$	22,261,402
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts		188,941			263,467
Depreciation and amortization		17,081,292			18,209,208
Valuation loss on inventory		56,294			30,370
Valuation loss (gain) on financial instruments, net		34,787			(146,918	)
Amortization of premium of financial assets		18,075			7,617
Loss on disposal of financial instruments, net		18,211			234,095
Loss on disposal of property, plant and equipment, net		13,139			9,138
Impairment loss on assets		—			85,349
Equity in earnings of equity method investees, net		(356,261	)		(123,119	)
Dividends received from equity investees		281,516			393,115
Deferred income taxes		80,663			282,477
Changes in operating assets and liabilities:
Financial assets held for trading		19,943			171,783
Trade notes and accounts receivable		(307,209	)		(368,679	)
Receivables from related parties		77,223			125,958
Other current monetary assets		(889,357	)		(1,096,489	)
Inventories		263,732			(400,060	)
Other current assets		(2,568,245	)		(1,152,902	)
Trade notes and accounts payable		(2,052,643	)		(3,215,674	)
Payables to related parties		(300,670	)		(710,099	)
Income tax payable		514,702			1,090,225
Accrued expenses		(5,330,318	)		(2,741,213	)
Other current liabilities		645,279			347,131
Deferred income		58,810			72,992
Accrued pension liabilities		32,240			19,256

Net cash provided by operating activities		32,571,562			33,648,430

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets		(1,765,364	)		(6,010,000	)
Proceeds from disposal of available-for-sale financial assets		12,389,853			4,490,787
Acquisition of held-to-maturity financial assets		(3,714,635	)		(1,948,505	)
Proceeds from disposal of held-to-maturity financial assets		587,500			547,693
Acquisition of financial assets carried at cost		(68,600	)		—
Proceeds from disposal of financial assets carried at cost		—			285,859
Acquisition of investments accounted for using equity method		—			(71,159	)
Acquisition of property, plant and equipment		(9,247,910	)		(10,004,743	)
Proceeds from disposal of property, plant and equipment		13,609			1,095
Increase in intangible assets		(47,561	)		(55,375	)
Increase in other assets		(2,514,433	)		(148,974	)

Net cash used in investing activities		(4,367,541	)		(12,913,322	)

(Continued)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars)


	2010			2009
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in customers’ deposits	$	(30,466	)	$	(19,012	)
Increase (decrease) in other liabilities		171,245			(165,512	)
Capital reduction		(9,696,808	)		(19,115,554	)

Net cash used in financing activities		(9,556,029	)		(19,300,078	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		18,647,992			1,435,030
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		68,393,379			77,137,903

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	87,041,371		$	78,572,933

SUPPLEMENTAL INFORMATION
Interest paid	$	14		$	36

Income tax paid	$	4,167,424		$	5,292,630

NON-CASH FINANCING ACTIVITIES
Dividends payable	$	39,369,041		$	37,138,775

CASH AND NON-CASH INVESTING ACTIVITIES
Increase in property, plant and equipment	$	8,409,882		$	9,358,701
Payables to suppliers		838,028			646,042

	$	9,247,910		$	10,004,743

(Continued)

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars)

The acquisition of InfoExplorer Co., Ltd. (“IFE”) was made on January 20, 2009. The following table presents the allocation of acquisition costs of IFE to assets acquired and liabilities assumed based on their fair values on the basis of the final data on May 7, 2009:


Cash and cash equivalents	$	457,990
Receivables		13,479
Other current assets		14,792
Property, plant, and equipment		40,221
Identifiable intangible assets		53,001
Refundable deposits		2,468
Other assets		2,338
Payables		(83,319	)
Income tax payable		(246	)
Other current liabilities		(153	)

Total		500,571
Percentage of ownership		49.07	%

		245,630
Goodwill		37,870

Acquisition costs of acquired subsidiary (cash prepaid for long-term investments in December 2008)	$	283,500

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche audit report dated August 11, 2010)

(Concluded)

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL

Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) pursuant to the Article 30 of the Telecommunications Act. Chunghwa is a company limited by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and Communications (“MOTC”). Prior to July 1, 1996, the current operations of Chunghwa were carried out under the Directorate General of Telecommunications (“DGT”). The DGT was established by the MOTC in June 1943 to take primary responsibility in the development of telecommunications infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom operations of the DGT were spun-off to as Chunghwa which continues to carry out the business and the DGT continues to be the industry regulator.

As the dominate telecommunications service provider of fixed-line and Global System for Mobile Communications (GSM) in the ROC, Chunghwa is subject to additional regulations imposed by ROC.

Effective August 12, 2005, the MOTC had completed the process of privatizing Chunghwa by reducing the government ownership to below 50% in various stages. In July 2000, Chunghwa received approval from the Securities and Futures Commission (the “SFC”) for a domestic initial public offering and its common shares were listed and traded on the Taiwan Stock Exchange (the “TSE”) on October 27, 2000. Certain of Chunghwa’s common shares had been sold, in connection with the foregoing privatization plan, in domestic public offerings at various dates from August 2000 to July 2003. Certain of Chunghwa’s common shares had also been sold in an international offering of securities in the form of American Depository Shares (“ADS”) on July 17, 2003 and were listed and traded on the New York Stock Exchange (the “NYSE”). The MOTC sold common shares of Chunghwa by auction in the ROC on August 9, 2005 and completed the second international offering on August 10, 2005. Upon completion of the share transfers associated with these offerings on August 12, 2005, the MOTC owned less than 50% of the outstanding shares of Chunghwa and completed the privatization plan.

As of June 30, 2010 and 2009, the Company had 24,277 and 24,425 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with the Securities and Exchange Act, the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law, Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the ROC (“ROC GAAP”). The preparation of financial statements requires management to make reasonable estimates and assumptions on allowances for doubtful accounts, valuation allowances on inventories, depreciation of property, plant and equipment, impairment of assets, bonuses paid to employees, remuneration to board of directors and supervisors, pension plans and income tax which are inherently uncertain. Actual results may differ from these estimates. The significant accounting policies are summarized as follows:

Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Cash Equivalents

Cash equivalents are commercial paper and treasury bills purchased with maturities of three months or less from the date of acquisition. The carrying amount approximates fair value.

Financial Assets and Liabilities at Fair Value Through Profit or Loss

Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (“FVTPL”) include financial assets or financial liabilities held for trading and are designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company losses control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired.

Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized as expenses as incurred. Financial assets or financial liabilities at FVTPL are remeasured at fair value, subsequently with changes in fair value recognized in earnings. Cash dividends received subsequently (including those received in the period of investment) are recognized as income. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in earnings. Regular way purchases or sales of financial assets are accounted for using trade date accounting.

Derivatives that do not meet the criteria for hedge accounting are classified as financial assets or financial liabilities held for trading. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of stockholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

The recognition and derecognition of available-for-sale financial assets are the same with those of financial assets at FVTPL.

Fair values are determined as follows: Listed stocks—at closing prices at the balance sheet date; open-end mutual funds—at net asset values at the balance sheet date; bonds—quoted at prices provided by the Taiwan GreTai Securities Market; and financial assets and financial liabilities without quoted prices in an active market—at values determined using valuation techniques.

Cash dividends are recognized in earnings on the ex-dividend date, except for the dividends declared before acquisition are treated as a reduction of investment cost. Stock dividends are recorded as an increase in the number of shares and do not affect investment income. The total number of shares subsequent to the increase of stock dividends is used for recalculate cost per share.

An impairment loss is recognized when there is objective evidence that the financial asset is impaired. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent to the decrease and recorded as an adjustment to stockholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Held-to-maturity Financial Assets

Held-to-maturity financial assets are carried at amortized cost using the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains and losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Revenue Recognition, Account Receivables and Allowance for Doubtful Receivables

Revenues are recognized when they are realized or realizable and earned. Revenues are realized or realizable and earned when the Company has persuasive evidence of an arrangement, the goods have been delivered or the services have been rendered to the customer, the sales price is fixed or determinable and collectibility is reasonably assured.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts agreed between the Company and the customers for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received approximates its fair value and transactions are frequent, fair value of the consideration is not determined by discounting all future receipts using an imputed rate of interest.

Usage revenues from fixed-line services (including local, domestic long distance and international long distance), cellular services, internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon minutes of traffic processed when the services are provided in accordance with contract terms.

The costs of providing services are recognized as incurred. Incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract are recognized in marketing expenses as incurred.

Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line services, wireless and internet and data services) are accrued every month, and (c) prepaid services (fixed-line, cellular and internet) are recognized as income based upon actual usage by customers or when the right to use those services expires.

Where the Company enters into transactions which involve both the provision of air time bundled with products such as 3G data card and handset, total consideration received from handsets in these arrangements is allocated and measured using units of accounting within the arrangement based on relative fair values limited to the amount that is not contingent upon the delivery of other items or services.

Where the Company sells products to third party cellular phone stores the Company records the direct sale of the products, typically handsets, as gross revenue when the Company is the primary obligor in the arrangement and when title is passed and the products are accepted by the stores.

An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Inventories

Inventories including merchandise and work-in-process are stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Investments Accounted for Using Equity Method

Investments in companies in which the Company exercises significant influence over the operating and financial policy decisions are accounted for by the equity method. Under the equity method, the investment is initially stated at cost and subsequently adjusted for its proportionate share in the net earnings of the investee companies. Any cash dividends received are recognized as a reduction in the carrying value of the investments.

Gains or losses on sales from the Company to equity method investees wherein the Company exercises significant influence over these equity investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. Gains or losses on sales from equity method investees to Chunghwa are deferred in proportion to the Chunghwa’s ownership percentages in the investees until they are realized through transactions with third parties.

When the Company subscribes for additional investees shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to additional paid-in capital to the extent available, with the balance charged to retained earnings.

Financial Assets Carried at Cost

Investments in equity instruments that do not have a quoted price in an active market and whose fair values cannot be reliably measured such as non-publicly traded stocks are measured at their original cost. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Property, Plant and Equipment

Property, plant and equipment are stated at cost plus a revaluation increment, if any, less accumulated depreciation and accumulated impairment loss. The interest costs that are directly attributable to the acquisition, construction of a qualifying asset are capitalized as property, plant and equipment. Major renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred.

When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized.

An impairment loss on a revalued asset is charged to “unrealized revaluation increment” under equity to the extent available, with the balance is recognized as a loss in earnings. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment loss could be reversed and recognized as a gain, with the remaining credited to “unrealized revaluation increment”.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Depreciation expense is computed using the straight-line method over the following estimated service lives: land improvements—10 to 30 years; buildings—10 to 60 years; computer equipment—6 to 10 years; telecommunications equipment—6 to 15 years; transportation equipment—5 to 10 years; and miscellaneous equipment—3 to 12 years.

Upon sale or disposal of property, plant and equipment, the related cost, accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment are deducted from the corresponding accounts, and any gain or loss is recorded as non-operating gains or losses in the period of sale or disposal.

Intangible Assets

Intangible assets mainly include 3G Concession, computer software and patents.

The 3G Concession is valid through December 31, 2018. The 3G Concession is amortized on a straight-line basis from the date operations commence through the date the license expires. Computer software costs and patents are amortized using the straight-line method over the estimated useful lives of 3-20 years.

The Company adopted the Statements of Financial Accounting Standards No. 37, “Intangible Assets.” Expenditure on research shall be expensed as incurred. Development costs are capitalized when those costs meet relative criteria and are amortized using the straight-line method over estimated useful lives. Development costs that do not meet relative criteria shall be expensed as incurred.

When an indication of impairment is identified for intangible assets, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, as if no impairment loss had been recognized.

Idle Assets

Idle assets are carried at the lower of recoverable amount or carrying amount.

Pension Costs

For defined benefit pension plans, net periodic pension benefit cost is recorded in the statement of income and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs, amortization of pension gains (losses) and curtailment or settlement gains (losses).

The Company recognizes into income, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets, defined as the “corridor”. Amounts inside this 10% corridor are amortized over the average remaining service life of active plan participants. Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the plans. Differences between the expected and actual returns on plan assets and changes in interest rate, which affect the discount rate used to value projected plan obligations, can have a significant impact on the calculation of pension net gains and losses from year to year.

The curtailments and settlement gains (losses) resulted from Chunghwa’s early retirement programs. Curtailment/settlement gains or losses are equal to the changes of underfunded status plus a pro rata portion of the unrecognized prior service cost, unrecognized net gains (losses), and unrecognized transition obligations/assets, before the settlement/curtailment event multiplied by the percentage reduction in projected benefit obligation.

The projected benefit obligation represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

The carrying amount of accrued pension liability should be the sum of the following amounts when the calculation is positive: (a) projected benefit obligation as of balance sheet date, (b) minus (plus) unamortized actuarial loss (gain), (c) minus unamortized prior service cost, and (d) minus the fair value of plan assets. If the amount determined by above calculation is negative, it is viewed as prepaid pension cost. The prepaid pension cost is measured at the lower of: (a) the amount determined above, and (b) the sum of the following amounts: (i) unamortized actuarial loss, (ii) unamortized prior service cost, and (iii) the present value of refunds from the plan or reductions in future contributions to the plan.

The measurement of benefit obligations and net periodic cost (income) is based on estimates and assumptions approved by the company’s management such as compensation, age and seniority, as well as certain assumptions, including estimates of discount rates, expected return on plan assets and rate of compensation increases.

For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods.

Expense Recognition

The costs of providing services are recognized as incurred. The cost includes incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract.

Income Tax

The Company applies inter-period allocations for its income tax, whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Income taxes (10%) on undistributed earnings is recorded in the year of stockholders approval which is the year subsequent to the year the earnings are generated.

Foreign-currency Transactions

Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign equity investees are translated into New Taiwan dollars at the following exchange rates. Assets and liabilities—spot rates at year-end; stockholders’ equity—historical rates, income and expenses—average rates during the period. The resulting translation adjustments are recorded as a separate component of stockholders’ equity.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Hedge Accounting

A hedging relationship qualifies for hedge accounting only if, all of the following conditions are met: (a) at the inception of the hedge, there is formal documentation of the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk, consistently with the risk management strategy documented for that particular hedging relationship; (c) the effectiveness of the hedge can be reliably measured; (d) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.

The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in earnings.

The hedging items that do not meet the criteria for hedge accounting were classified as financial assets or financial liabilities at fair value through profit or loss.

3. EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE

The Company early adopted the Statement of Financial Accounting Standards No. 41 “Operating Segments” (“SFAS No. 41”) starting from September 1, 2009. This Statement supersedes the Statement of Financial accounting Standards No. 20 “Segment Reporting”. For comparative purpose, the segment information for the six months ended June 30, 2009 was presented in accordance with SFAS No. 41.

The Company adopted the newly-revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories,” (“SFAS No. 10”) beginning from January 1, 2009, which requires inventories to be stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. The inventory-related incomes and expenses shall be classified in operating cost.

4. CASH AND CASH EQUIVALENTS


	June 30
	2010		2009
Cash
Cash on hand	$	84,234	$	89,142
Bank deposits		3,787,544		9,729,204
Negotiable certificate of deposit, annual yield rate - ranging from 0.37%-0.45% and 0.15%-0.50% for 2010 and 2009, respectively.		69,600,000		48,150,000

		73,471,778		57,968,346

Cash equivalents
Commercial paper, annual yield rate - ranging from 0.25%-0.28% and 0.13%-0.15% for 2010 and 2009, respectively.		9,987,330		20,604,587
Treasury bills, annual yield rate - ranging from 0.25%-0.28% for 2010		3,582,263		—

		13,569,593		20,604,587

	$	87,041,371	$	78,572,933

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

As of June 30, 2010 and 2009, foreign deposits in bank were as follows:

5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS


	June 30
	2010		2009
Derivatives - financial assets
Currency swap contracts	$	—	$	22,423

Derivatives - financial liabilities
Currency swap contracts	$	23,656	$	—

Chunghwa entered into investment management agreements with well-known financial institutions (fund managers) to manage its investment portfolios in 2006. The investment portfolios managed by these fund managers aggregated to an original amount of US$100,000 thousand. Chunghwa terminated the investment management agreements on April 14, 2009 and asked fund managers to dispose of all the investment portfolios. The fund managers had disposed all investment portfolios before June 23, 2009 and returned the proceeds to Chunghwa.

Chunghwa entered into currency swap contracts to reduce its exposure to foreign currency risk and variability in operating results due to fluctuations in exchange rates and stock prices. However, these derivatives do not meet the criteria for hedge accounting and were classified as financial assets or financial liabilities held for trading.

Outstanding currency swap contracts as of June 30, 2010 and 2009 were as follows:


	Currency	Maturity Period	Contract Amount (In Thousands)
June 30, 2010
Currency swap contracts	US$/NT$	2010.07	US$45,000/NT$1,426,395
June 30, 2009
Currency swap contracts	US$/NT$	2009.07	US$85,000/NT$2,788,879

Net gain (losses) arising from financial assets and liabilities at fair value through profit or loss for the six months ended June 30, 2010 and 2009 were $(10,390) thousand (including realized settlement gain of $19,943 thousand and valuation loss of $30,333 thousand) and $43,027 thousand (including realized settlement loss of $70,985 thousand and valuation gain of $114,012 thousand), respectively.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS


	June 30
	2010		2009
Open-end mutual funds	$	5,525,810	$	16,171,555
Domestic listed stocks		73,298		—
Real estate investment trust fund		—		182,820

	$	5,599,108	$	16,354,375

Movements of unrealized gain (loss) on available-for-sale financial assets were as follows:


	Six Months Ended June 30
	2010			2009
Balance, beginning of period	$	(466,803	)	$	(2,255,905	)
Recognized in stockholders’ equity		(456,329	)		771,204
Transferred to profit or loss		38,154			113,399

Balance, end of period	$	(884,978	)	$	(1,371,302	)

As a result of the global economic and financial crisis, the Company determined that the impairment losses of available-for-sale financial assets was other-than-temporary in nature, and recorded impairment losses of $85,349 thousand for the six months ended June 30, 2009.

7. HELD-TO-MATURITY FINANCIAL ASSETS


	June 30
	2010		2009
Corporate bonds, nominal interest rate ranging from 0.77%-4.75% and 0.80%-4.75% for 2010 and 2009, respectively; effective interest rate ranging from 0.50%-2.95% and 0.80%-2.95% for 2010 and 2009, respectively	$	7,639,850	$	4,388,813
Bank debentures, nominal interest rate ranging from 1.87%-2.11% and 1.95%-2.30% for 2010 and 2009, respectively; effective interest rate ranging from 1.14%-2.90% and 1.14%-2.90% for 2010 and 2009, respectively		498,467		796,752
Collateralized loan obligation, nominal and effective interest rate was 2.18% for 2009		—		21,167

		8,138,317		5,206,732
Less: Current portion		1,190,089		670,541

	$	6,948,228	$	4,536,191

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

8. ALLOWANCE FOR DOUBTFUL ACCOUNTS


	Six Months Ended June 30
	2010			2009
Balance, beginning of period	$	2,774,868		$	2,992,143
Provision for doubtful accounts		181,291			258,776
Accounts receivable written off		(267,494	)		(397,888	)

Balance, end of period	$	2,688,665		$	2,853,031

9. OTHER CURRENT MONETARY ASSETS


	June 30
	2010		2009
Accrued custodial receipts from other carriers	$	498,910	$	546,036
Other		2,154,746		2,700,750

	$	2,653,656	$	3,246,786

10. INVENTORIES, NET


	June 30
	2010		2009
Merchandise	$	501,738	$	361,469
Work in process		364,758		475,672

	$	866,496	$	837,141

The operating costs related to inventories were $4,130,733 thousand (including the valuation loss on inventories of $56,294 thousand) and $2,437,805 thousand (including the valuation loss on inventories of $30,370 thousand) for the six months ended June 30, 2010 and 2009, respectively.

11. OTHER CURRENT ASSETS


	June 30
	2010		2009
Prepaid expenses	$	2,499,809	$	2,405,326
Spare parts		2,264,197		1,868,913
Prepaid rents		909,320		883,735
Miscellaneous		242,242		177,586

	$	5,915,568	$	5,335,560

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


	June 30
	2010			2009
	Carrying Amount		% of Ownership	Carrying Amount		% of Ownership
Listed
Senao International Co., Ltd. (“SENAO”)	$	1,263,026	28	$	1,192,470	29

Non-listed
Light Era Development Co., Ltd. (“LED”)		2,891,613	100		2,952,556	100
Chunghwa Investment Co., Ltd. (“CHI”)		1,653,215	89		841,475	49
Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)		1,426,836	100		782,281	100
Chunghwa System Integration Co., Ltd. (“CHSI”)		707,252	100		712,953	100
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		508,841	40		495,158	40
CHIEF Telecom Inc. (“CHIEF”)		486,227	69		433,045	69
Viettel-CHT Co., Ltd. (“Viettel-CHT”)		273,140	30		88,198	33
InfoExplorer Co., Ltd. (“IFE”)		251,982	49		279,423	49
Donghwa Telecom Co., Ltd. (“DHT”)		239,338	100		224,105	100
Chunghwa International Yellow Pages Co., Ltd. (“CIYP”)		176,704	100		152,699	100
Skysoft Co., Ltd. (“SKYSOFT”)		87,234	30		85,775	30
Chunghwa Telecom Global, Inc. (“CHTG”)		75,974	100		69,024	100
Spring House Entertainment Inc. (“SHE”)		64,866	56		47,986	56
KingWaytek Technology Co., Ltd. (“KWT”)		64,834	33		69,003	33
So-net Entertainment Taiwan Co., Ltd. (“So-net”)		26,155	30		44,929	30
Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)		12,667	100		11,270	100
New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)		—	100		—	100
Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)		—	100		—	100

		8,946,878			7,289,880

	$	10,209,904		$	8,482,350

On March 27, 2009, the board of directors of Chunghwa resolved to purchase 48,000 thousand common shares of Senao International Co., Ltd. (“SENAO”) through SENAO’s private placement. However Chunghwa and SENAO did not complete the required procedures within the legal payment period; therefore, Chunghwa and SENAO decided to discontinue the private placement.

Chunghwa invested in Chunghwa Investment Co., Ltd. (“CHI”) in September 2009 for $758,709 thousand. Chunghwa increased its ownership interest in CHI from 49% to 89%. CHI engages mainly in professional investing in telecommunication business and the telecommunication valued-added services.

Chunghwa increased its investment in Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”) for $610,659 thousand in July 2009. CHTS engages mainly in telecommunication wholesale, internet transfer services, international data, long distance call wholesales to carriers and the world satellite business. ST-1 telecommunications satellite is expected be retired in 2011; therefore, CHTS and SingTelSat Pte., Ltd. established a joint venture, ST-2 Satellite Ventures Pte., Ltd. (“STS”) in Singapore in October 2008 in order to maintain the current service. STS will engage in the installation and the operation of ST-2 telecommunications satellite.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Chunghwa participated in the capital increase of Viettel-CHT in September 2009, by investing $197,088 thousand cash and its ownership interest of Viettel-CHT was decreased from 33% to 30%. Viettel-CHT engages mainly in IDC services.

Chunghwa prepaid $283,500 thousand to invest in InfoExplorer Co., Ltd. (“IFE”) and the record date of capital increase of IFE was January 5, 2009. Chunghwa acquired 49% of ownership. Chunghwa has control over IFE by obtaining above half of seats of the board of directors of IFE on January 20, 2009, which was IFE’s stockholder’s meeting. IFE mainly engages in information system planning and maintenance, software development, and information technology consultation services.

Chunghwa participated in So-net Entertainment Taiwan Co., Ltd.’s capital increase on April 3, 2009, by investing $60,008 thousand cash, and acquired 30% of its Taiwan shares. So-net Entertainment Taiwan Co., Ltd. engages mainly in online service and sale of computer hardware.

Chunghwa increased its investment on CHTJ by investing $11,151 thousand cash in January 2009. CHTJ engages mainly in telecommunication business, information processing and information providing service, development and sale of software and consulting services in telecommunication.

Chunghwa has established New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”) and Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”) in March 2006, but not on operation stage yet. Both holding companies are operating as investment companies and Chunghwa has 100% ownership right in an amount of US$1 in each holding company.

Market value of the listed investment accounted for using equity method calculated at its closing prices as of June 30, 2010 and 2009 was 3,703,495 thousand and 2,845,806 thousand, respectively.

The equity in earnings and losses for the six months ended June 30, 2010 and 2009 were based on the audited financial statements.

All accounts of Chunghwa’s subsidiaries were included in Chunghwa’s consolidated financial statements.

13. FINANCIAL ASSETS CARRIED AT COST


	June 30
	2010			2009
	Carrying Amount		% of Ownership	Carrying Amount		% of Ownership
Non-listed
Taipei Financial Center Corp. (“TFC”)	$	1,789,530	12	$	1,789,530	12
Industrial Bank of Taiwan II Venture Capital Co., Ltd. (“IBT II”)		200,000	17		200,000	17
Global Mobile Corp. (“GMC”)		127,018	11		127,018	11
iD Branding Ventures (“iDBV”)		75,000	8		75,000	8
Innovation Works Development Fund, L.P. (“IWDF”)		38,035	13		—	—
RPTI Intergroup International Ltd.(“RPTI”)		34,500	10		34,500	12
CQi Energy Infocom Inc. (“CQi”)		20,000	18		—	—
Innovation Works Limited (“IW”)		10,565	2		—	—
Essence Technology Solution, Inc. (“ETS”)		—	9		10,000	9

	$	2,294,648		$	2,236,048

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Chunghwa invested in IWDF for $38,035 thousand in June 2010. IWDF invests mainly in start-up companies of E-commerce, mobile internet and cloud computing, etc.

Chunghwa invested in CQi for $20,000 thousand in June 2010. CQi engages mainly in intelligent energy network management services.

Chunghwa invested in IW for $10,565 thousand in June 2010. IW invests mainly in start-up companies and mentors such companies in the E-commerce, mobile internet and cloud computing fields, etc.

RPTI completed a capital reduction to offset its deficits and as a result the number of shares held by Chunghwa was reduced from 9,234 thousand shares to 4,765 thousand shares in August, 2009. Subsequent to this capital reduction, RPTI raised additional capital through cash contributions. Chunghwa did not participate in the RPTI’s capital increase plan; therefore, Chunghwa’s ownership of RPTI decreased to 10%.

After evaluating the financial assets carried at cost, Chunghwa determined the investment in ETS was impaired and recognized an impairment loss of NT$10,000 thousand in 2009.

Chunghwa participated in TFC’s capital increase in October 2008 and prepaid $285,859 thousand. However, TFC was not expected to be able to collect enough amount of capital increase within a specific period; therefore TFC’s board of directors held a meeting on April 10, 2009 and resolved to withdraw its capital increase plan from Securities and Futures Bureau of Financial Supervisory Commission, Executive Yuan (“FSC”). TFC returned the prepayment to Chunghwa on May 8, 2009.

The above investments that do not have a quoted market price in an active market and whose fair values cannot be reliably measured are carried at original cost.

14. OTHER MONETARY ASSETS - NONCURRENT

As part of the government’s effort to upgrade the existing telecommunications infrastructure, Chunghwa and other public utility companies were required by the ROC government to contribute a total of $1,000,000 thousand to a Piping Fund administered by the Taipei City Government. This fund were used to finance various telecommunications infrastructure projects.

15. PROPERTY, PLANT AND EQUIPMENT


	June 30
	2010		2009
Cost
Land	$	101,292,062	$	101,259,764
Land improvements		1,538,691		1,513,208
Buildings		65,695,722		62,686,423
Computer equipment		15,408,439		15,434,463
Telecommunications equipment		655,365,545		652,387,793
Transportation equipment		1,972,585		2,243,028
Miscellaneous equipment		6,985,801		7,159,198

Total cost		848,258,845		842,683,877
Revaluation increment on land		5,800,909		5,810,342

		854,059,754		848,494,219

				(Continued	)

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)


	June 30
	2010		2009
Accumulated depreciation
Land improvements	$	978,932	$	923,853
Buildings		17,860,557		16,805,966
Computer equipment		11,939,517		11,742,232
Telecommunications equipment		524,159,918		512,046,657
Transportation equipment		1,739,103		2,056,290
Miscellaneous equipment		5,932,446		6,096,352

		562,610,473		549,671,350

Construction in progress and advances related to acquisition of equipment		10,991,199		14,212,625

Property, plant and equipment, net	$	302,440,480	$	313,035,494

				(Concluded	)

Pursuant to the related regulations, Chunghwa revalued its land owned as of April 30, 2000 based on the publicly announced values on July 1, 1999. These revaluations which have been approved by the Ministry of Auditing resulted in increases in the carrying values of property, plant and equipment of $5,986,074 thousand, liabilities for land value incremental tax of $211,182 thousand, and stockholder’s equity - other adjustments of $5,774,892 thousand.

The amendment to the Land Tax Act, relating to the article to permanently lower land value incremental tax, went effective from February 1, 2005. In accordance with the lowered tax rates, Chunghwa recomputed its land value incremental tax, and reclassified the reserve for land value incremental tax of $116,196 thousand to stockholder’s equity - other adjustments. As of June 30, 2010, the unrealized revaluation increment was decreased to $5,803,446 thousand by disposal of revaluation assets.

Depreciation on property, plant and equipment for the six months ended June 30, 2010 and 2009 was $16,500,893 thousand and $17,678,816 thousand, respectively. No interest expense was capitalized for the six months ended June 30, 2010 and 2009.

16. ACCRUED EXPENSES


	June 30
	2010		2009
Accrued salary and compensation	$	4,109,125	$	7,150,199
Accrued employees’ bonuses and remuneration to directors and supervisors		2,822,183		2,322,659
Accrued franchise fees		1,139,941		1,137,051
Other accrued expenses		3,098,493		2,329,480

	$	11,169,742	$	12,939,389

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

17. OTHER CURRENT LIABILITIES


	June 30
	2010		2009
Advances from subscribers	$	6,638,287	$	5,399,428
Amounts collected in trust for others		2,294,417		2,268,896
Payables to equipment suppliers		1,520,387		1,247,747
Payables to contractors		1,472,126		2,012,710
Refundable customers’ deposits		1,067,024		1,012,910
Miscellaneous		2,810,388		3,272,700

	$	15,802,629	$	15,214,391

18. STOCKHOLDERS’ EQUITY

Under Chunghwa’s Articles of Incorporation, Chunghwa’s authorized capital is $120,000,000,000 which is divided into 12,000,000,000 common shares (at $10 par value per share), among which 9,696,808,181 shares are issued and outstanding as of June 30, 2010.

On March 28, 2006, the board of directors approved the issuance of the 2 preferred shares, and the MOTC purchased the 2 preferred shares at par value on April 4, 2006. In accordance with the Articles of Incorporation of Chunghwa, the preferred shares would be redeemed by Chunghwa three years from the date of issuance at their par value. These preferred shares expired on April 4, 2009 and were redeemed on April 6, 2009.

For the purpose of privatizing Chunghwa, the MOTC sold 1,109,750 thousand common shares of Chunghwa in an international offering of securities in the form of American Depositary Shares (“ADS”) amounting to 110,975 thousand units (one ADS represents ten common shares) on the New York Stock Exchange on July 17, 2003. Afterwards, the MOTC sold 1,350,682 thousand common shares in the form of ADS amounting to 135,068 thousand units on August 10, 2005. Subsequently, the MOTC and Taiwan Mobile Co., Ltd. sold 505,389 thousand and 58,959 thousand common shares of Chunghwa, respectively, in the form of ADS totally amounting to 56,435 thousand units on September 29, 2006. The MOTC and Taiwan Mobile Co., Ltd. have sold 3,024,780 thousand common shares in the form of ADS amounting to 302,478 thousand units. As of June 30, 2010, the outstanding ADSs were 962,735 thousand common shares, which equaled approximately 96,274 thousand units and represented 9.93 % of Chunghwa’s total outstanding common shares.

The ADS holders generally have the same rights and obligations as other common stockholders, subject to the provision of relevant laws. The exercise of such rights and obligations shall comply with the related regulations and deposit agreement, which stipulate, among other things, that ADS holders can, through deposit agents:

a.	Exercise their voting rights,

b.	Sell their ADSs, and

c.	Receive dividends declared and subscribe to the issuance of new shares.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Under the ROC Company Law, additional paid-in capital may only be utilized to offset deficits. For those companies having no deficits, additional paid-in capital arising from capital surplus can be used to increase capital stock and distribute to stockholders in proportion to their ownership at the ex-dividend date. Also, such amounts can only be declared as a stock dividend by Chunghwa at an amount calculated in accordance with the provisions of existing regulations. The combined amount of any portions capitalized each year may not exceed 10 percent of common stock issued. However, where a company undergoes an organizational change (such as a merger, acquisition, or reorganization) that results in the capitalization of undistributed earnings after the organizational change, the above restriction does not apply.

In addition, before distributing a dividend or making any other distribution to stockholders, Chunghwa must pay all outstanding taxes, recover any past losses and set aside a legal reserve equal to 10% of its net income, and depending on its business needs or requirements, may also set aside a special reserve. In accordance with the Articles of Incorporation, no less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed in the following order: (a) from 2% to 5% of distributable earnings shall be distributed to employees as employee bonus; (b) no more than 0.2% of distributable earnings shall be distributed to board of directors and supervisors as remuneration; and (c) cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividends to be distributed is less than NT$0.10 per share, such cash dividend shall be distributed in the form of common shares.

Chunghwa operates in a capital-intensive and technology-intensive industry and requires capital expenditures to sustain its competitive position in high-growth market. Thus, Chunghwa’s dividend policy takes into account future capital expenditure outlays. In this regard, a portion of the earnings may be retained to finance these capital expenditures. The remaining earnings can then be distributed as dividends if approved by the stockholders in the following year and will be recorded in the financial statements of that year.

For the six months ended June 30, 2010 and 2009, the accrual amounts for bonuses to employees and remuneration to directors and supervisors is based on management estimates including past experience and probable amount to be paid in accordance with Chunghwa’s Articles of Incorporation and Implementation Guidance for the Employee’s Bonus Distribution of Chunghwa Telecom Co., Ltd.

If the initial accrual amounts of the aforementioned bonus are significantly different from the amounts proposed by the board of directors, the difference is charged to the earnings of the year making the initial estimate. Otherwise, the difference between initial accrual amounts and the amounts resoluted in the shareholders’ meeting is charged to the earnings of the following year as a result of change of accounting estimate.

Under the ROC Company Law, the appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or when reaching 50% of the aggregate par value of the outstanding capital stock of Chunghwa, up to 50% of the reserve may, at the option of Chunghwa, be declared as a stock dividend and transferred to capital.

The appropriations and distributions of the 2009 and 2008 earnings of Chunghwa have been approved by the stockholders on June 18, 2010 and June 19, 2009 as follows:


	Appropriation of Earnings				Dividend Per Share
	2009		2008		2009		2008
Legal reserve	$	4,374,014	$	4,127,675	$	—	$	—
Special reserve		—		475		—		—
Cash dividends		39,369,041		37,138,775		4.06		3.83

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

The amounts for bonuses to employees and remuneration to directors and supervisors approved in the stockholders’ meeting on June 18, 2010, were $1,800,929 thousand and $41,211 thousand paid by cash, respectively. There was no difference between the initial accrual amounts and the amounts resolved in stockholders’ meeting of the aforementioned bonuses to employees and the remuneration to directors and supervisors.

The amounts for bonuses to employees and remuneration to directors and supervisors approved in the stockholders’ meeting on June 19, 2009, were $1,629,915 thousand and $38,807 thousand paid by cash, respectively. The aforementioned approved amounts of the bonus to employees and the remuneration to directors and supervisors were different from the accrual amounts of $1,723,921 thousand and $40,886 thousand, respectively, reflected in the statement of income for the year ended December 31, 2008. The differences of $94,006 thousand and $2,079 thousand, respectively, were treated as change in estimates and were adjusted against earnings for the six months ended June 30, 2009.

Information on the appropriation of Chunghwa’s 2009 earnings, employees bonuses and remuneration to directors and supervisors resolved by the board of directors and approved by the stockholders is available at the Market Observation Post System website.

The stockholders, at the stockholders’ meeting held on June 18, 2010, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in the amount of $19,393,616 thousand in order to improve the financial condition of Chunghwa and better utilize its excess funds. The stockholders further authorized the board of directors of Chunghwa to designate the record date of capital reduction after the capital reduction plan is effectively registered with FSC.

The stockholders, at a meeting held on June 19, 2009, resolved to transfer capital surplus in the amount of $9,696,808 thousand to common capital stock. The abovementioned 2009 capital increase proposal was effectively registered with FSC. The board of directors authorized the chairman of directors to decide the ex-dividend date of the aforementioned proposal and the chairman decided the ex-dividend date as August 9, 2009.

The stockholders, at the stockholders’ meeting held on June 19, 2009, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The abovementioned 2009 capital reduction proposal was effectively approved by FSC. The board of directors of Chunghwa further authorized the chairman of board of directors of Chunghwa to designate the record date of capital reduction as of October 26, 2009. Subsequently, common capital stock was reduced by $9,696,808 thousand and the stock transfer date of capital reduction was January 28, 2010. The amount due to stockholders for capital reduction was paid in February 2010.

The stockholders, at a special meeting held on August 14, 2008, resolved to transfer capital surplus in the amount of $19,115,554 thousand to common capital stock. The abovementioned 2008 capital increase proposal was effectively registered with FSC. The board of directors resolved the ex-dividend date of the aforementioned proposal as October 25, 2008.

The stockholders, at the stockholders’ meeting held on August 14, 2008, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The capital reduction plan was effected by a transfer of capital surplus in the amount of $19,115,554 thousand to common capital stock and was effectively registered with FSC. Chunghwa designated December 30, 2008 as the record date and March 9, 2009 as the stock transfer date of capital reduction. Subsequently, common capital stock was reduced by $19,115,554 thousand and a liability for the same amount of cash to be distributed to stockholders was recorded. Such cash payment to stockholders was made in March 2009.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

19. COMPENSATION, DEPRECIATION AND AMORTIZATION EXPENSES


	Six Months Ended June 30, 2010
	Operating Costs		Operating Expenses		Total
Compensation expense
Salaries	$	6,056,874	$	4,198,957	$	10,255,831
Insurance		495,741		344,126		839,867
Pension		836,712		557,955		1,394,667
Other compensation		4,647,825		3,213,702		7,861,527

	$	12,037,152	$	8,314,740	$	20,351,892

Depreciation expense	$	15,663,186	$	837,707	$	16,500,893

Amortization expense	$	503,300	$	77,099	$	580,399


	Six Months Ended June 30, 2009
	Operating Costs		Operating Expenses		Total
Compensation expense
Salaries	$	6,075,780	$	4,137,113	$	10,212,893
Insurance		423,519		291,536		715,055
Pension		805,479		570,654		1,376,133
Other compensation		3,993,505		2,742,003		6,735,508

	$	11,298,283	$	7,741,306	$	19,039,589

Depreciation expense	$	16,733,371	$	945,445	$	17,678,816

Amortization expense	$	454,444	$	75,512	$	529,956

20. INCOME TAX

a.	A reconciliation between income tax expense computed by applying the statutory income tax rate to income before income tax and income tax payable is as follows:


	Six Months Ended June 30
	2010			2009
Income tax expense computed at statutory income tax rate	$	5,058,215		$	7,231,674
Add (deduct) tax effects of:
Permanent differences		(66,648	)		(96,567	)
Temporary differences		(18,836	)		19,312
10% undistributed earnings tax		1,286			6,441
Investment tax credits		(289,949	)		(632,810	)

Income tax payable	$	4,684,068		$	6,528,050

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

b.	Income tax expense consists of the following:


	Six Months Ended June 30
	2010			2009
Income tax payable	$	4,684,068		$	6,528,050
Income tax - separated		3,688			49,128
Income tax - deferred		80,663			282,477
Adjustments of prior years’ income tax		(5,630	)		(194,323	)

	$	4,762,789		$	6,665,332

In May 2010, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces the income tax rate of profit-seeking enterprises from 20% to 17%, effective January 1, 2010. After the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, the Company recalculated its deferred income tax assets and liabilities in accordance with the amended Article and recorded the resulting difference as an income tax expense or benefit.

Under Article 10 of the Statute for Industrial Innovation (SII) passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019.

c.	Net deferred income tax assets (liabilities) consists of the following:


	June 30
	2010			2009
Current
Provision for doubtful accounts	$	290,142		$	377,136
Unrealized accrued expense		56,167			48,783
Unrealized foreign exchange loss		(36,839	)		29,426
Valuation loss (gain) on financial instruments, net		(1,890	)		(23,034	)
Other		18,198			19,021

		325,778			451,332
Valuation allowance		(290,142	)		(377,136	)

Net deferred income tax assets - current	$	35,636		$	74,196

Noncurrent
Accrued pension cost	$	291,222		$	1,131,060
Impairment loss		51,602			64,163

Net deferred income tax assets - noncurrent	$	342,824		$	1,195,223

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

d.	The related information under the Integrated Income Tax System is as follows:

The actual creditable ratios distribution of Chunghwa’s of 2009 and 2008 for earnings were 26.48% and 30.61%, respectively.

e.	Undistributed earnings information

As of June 30, 2010 and 2009, there is no earnings generated prior to June 30, 1998 in Chunghwa’s undistributed earnings.

Income tax returns through the year ended December 31, 2005 have been examined by the ROC tax authorities.

21. EARNINGS PER SHARE

EPS was calculated as follows:


	Amount (Numerator)						Weighted- average Number of Common Shares Outstanding (Denominator)	Earnings Per Share (Dollars)
	Income Before Income Tax			Net Income				Income Before Income Tax		Net Income
Six months ended June 30, 2010
Basic EPS
Income attributable to stockholders	$	29,754,207		$	24,991,418		9,696,808	$	3.07	$	2.58

Effect of dilutive potential common stock
SENAO’s stock options		(3,866	)		(3,866	)	—
Employee bonus		—			—		35,947

Diluted EPS
Income attributable to stockholders (including effect of dilutive potential common stock)	$	29,750,341		$	24,987,552		9,732,755	$	3.06	$	2.57

Six months ended June 30, 2009
Basic EPS
Income attributable to stockholders	$	28,926,734		$	22,261,402		9,696,808	$	2.98	$	2.30

Effect of dilutive potential common stock
SENAO’s stock options		(1,038	)		(1,038	)	—
Employee bonus		—			—		33,294

Diluted EPS
Income attributable to stockholders (including effect of dilutive potential common stock)	$	28,925,696		$	22,260,364		9,730,102	$	2.97	$	2.29

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

In March 2007, the ARDF issued an Interpretation 96-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings beginning from January 1, 2008. According to the Interpretation 97-169 issued by ARDF in May 2008, Chunghwa presumed that the employees bonuses to be paid will be settled in shares and takes those shares into consideration when calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if the shares have a dilutive effect for the six months ended June 30, 2010 and 2009. The number of shares is calculated by dividing the amount of bonuses by the closing price of the Chunghwa’s shares of the balance sheet date. The dilutive effect of the shares needs to be considered until the stockholders resolve the number of shares to be distributed to employees in their meeting in the following year.

The diluted earnings per share for the six months ended June 30, 2010 and 2009 was due to the effect of potential common stock related to stock options granted by SENAO.

The weighted-average number of outstanding shares for EPS calculation has been retroactively adjusted for capital reduction. The retroactive adjustments caused the basic EPS before income tax and after income tax for the six months ended June 30, 2009 to increase from NT$2.71 to NT$2.98 and to increase from NT$2.09 to NT$2.30, respectively, and the diluted EPS before income tax and after income tax for the six months ended June 30, 2009, to increase from NT$2.70 to NT$2.97 and to increase from NT$2.08 to NT$2.29, respectively.

22. PENSION PLAN

Chunghwa completed privatization plans on August 12, 2005. Chunghwa is required to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization in accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the Privatization Fund. However, according to the instructions of MOTC, Chunghwa would, on behalf of the MOTC to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization.

The pension plan under the Labor Pension Act of ROC (the “LPA”) is effective beginning July 1, 2005 and this pension mechanism is considered as a defined contribution plan. Based on the LPA, Chunghwa makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

Chunghwa’s pension plan is considered as a defined benefit plan under the Labor Standards Law that provide benefits based on an employee’s length of service and average six-month salary prior to retirement. Chunghwa contributes an amount at 15% or less of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank of Taiwan.

The balance of Chunghwa’s plan assets subject to defined benefit plan were $11,746,275 thousand and $5,440,162 thousand as of June 30, 2010 and 2009, respectively.

Pension costs of Chunghwa were $1,431,803 thousand ($1,372,432 thousand subject to defined benefit plan and $59,371 thousand subject to defined contribution plan) and $1,412,661 thousand ($1,366,125 thousand subject to defined benefit plan and $46,536 thousand subject to defined contribution plan) for the six months ended June 30, 2010 and 2009, respectively.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

23. TRANSACTIONS WITH RELATED PARTIES

The ROC Government, one of Chunghwa’s customers held significant equity interest in Chunghwa. Chunghwa provides fixed-line services, wireless services, Internet and data and other services to the various departments and institutions of the ROC Government and other state-owned enterprises in the normal course of business and at arm’s-length prices. The information on service revenues from government bodies and related organizations have not been provided because details of the type of transactions were not summarized by Chunghwa. Chunghwa believes that all costs of doing business are reflected in the financial statements.

a.	Chunghwa engages in business transactions with the following related parties:


Company		Relationship
Senao International Co., Ltd. (“SENAO”)		Subsidiary
Light Era Development Co., Ltd. (“LED”)		Subsidiary
Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)		Subsidiary
CHIEF Telecom, Inc. (“CHIEF”)		Subsidiary
InfoExplorer Co., Ltd. (“IFE”)		Subsidiary
Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)		Subsidiary
Chunghwa International Yellow Pages Co., Ltd. (“CIYP”)		Subsidiary
Chunghwa System Integration Co., Ltd. (“CHSI”)		Subsidiary
Spring House Entertainment Inc. (“SHE”)		Subsidiary
Chunghwa Telecom Global, Inc. (“CHTG”)		Subsidiary
Donghwa Telecom Co., Ltd. (“DHT”)		Subsidiary
New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)		Subsidiary
Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)		Subsidiary
Chunghwa Investment Co., Ltd. (“CHI”)		Equity-method investee before Chunghwa obtained control over CHI on September 9, 2009
Chunghwa Investment Holding Co., Ltd. (“CIHC”)		Subsidiary of CHI, which was equity-method investee before Chunghwa obtained control over CHI on September 9, 2009
Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”)		Subsidiary of CHI, which was equity-method investee before Chunghwa obtained control over CHI on September 9, 2009
Unigate Telecom Inc. (“Unigate”)		Subsidiary of CHIEF
CHIEF Telecom (Hong Kong) Limited (“CHK”)		Subsidiary of CHIEF
Chief International Corp. (“CIC”)		Subsidiary of CHIEF
Concord Technology Co., Ltd. (“Concord”)		Subsidiary of CHSI
Glory Network System Service (Shanghai) Co., Ltd. (“Glory”)		Subsidiary of Concord
Senao International (Samoa) Holding Ltd. (SIS)		Subsidiary of SENAO
Senao International HK Limited (SIHK)		Subsidiary of SENAO
CHI One Investment Co., Ltd. (“COI”)		Subsidiary of CHI
Yao Yong Real Property Co., Ltd. (“YYRP”)		Subsidiary of LED
InfoExplorer International Co., Ltd. (“IESA”)		Subsidiary of IFE
InfoExplorer (Hong Kong) Co., Ltd. (“IEHK”)		Subsidiary of IFE
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		Equity-method investee
So-net Entertainment Taiwan Co., Ltd. (“So-net”)		Equity-method investee
Skysoft Co., Ltd. (“SKYSOFT”)		Equity-method investee
Senao Networks, Inc. (“SNI”)		Equity-method investee of SENAO
ST-2 Satellite Ventures Pte., Ltd. (“STS”)		Equity-method investee of CHTS

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

b.	Significant transactions with the above related parties are summarized as follows:


	June 30
	2010			2009
	Amount		%	Amount		%
1) Receivables
Trade notes and accounts receivable
SENAO	$	228,078	75	$	121,635	56
CHIEF		23,075	7		21,388	10
CHTG		17,296	6		13,987	6
CIYP		10,244	3		30,306	14
CHSI		2,706	1		14,800	7
Others		24,596	8		14,942	7

	$	305,995	100	$	217,058	100

2) Payables
Trade notes payable, accounts payable, and accrued expenses
SENAO	$	633,902	41	$	520,969	36
TISE		321,543	21		349,389	24
CHSI		162,390	11		205,965	14
CHTG		45,319	3		25,173	2
CHIEF		40,324	3		50,215	4
DHT		36,901	2		36,285	2
SHE		17,569	1		12,212	1
Others		27,709	2		13,040	—

		1,285,657	84		1,213,248	83

Payables to constructors
CHSI		2,157	—		1,358	—
TISE		1,560	—		15,412	1

		3,717	—		16,770	1

Amounts collected in trust for others
SENAO		234,915	15		224,382	16
Others		11,717	1		10,371	—

		246,632	16		234,753	16

	$	1,536,006	100	$	1,464,771	100


	Six Months Ended June 30
	2010			2009
	Amount		%	Amount		%
3) Revenues
SENAO	$	956,329	1	$	347,971	—
So-net		155,523	—		24,608	—
CHIEF		124,162	—		111,274	—
CHTG		28,448	—		25,128	—
SKYSOFT		18,777	—		17,086	—
CHSI		15,148	—		7,925	—
LED		10,427	—		2,214	—
Others		19,900	—		20,192	—

	$	1,328,714	1	$	556,398	—

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)


	Six Months Ended June 30
	2010			2009
	Amount		%	Amount		%
4) Operating costs and expenses
SENAO	$	2,376,748	4	$	2,566,458	4
TISE		461,035	1		232,188	1
CHSI		293,915	1		169,862	—
CHIEF		145,567	—		150,251	—
CHTG		62,793	—		24,183	—
IFE		27,196	—		100	—
SHE		26,102	—		32,456	—
CIYP		15,309	—		25,844	—
DHT		14,886	—		6,276	—
CHTS		11,726	—		1,083	—
CHTJ		7,788	—		771	—
Others		8,025	—		3,656	—

	$	3,451,090	6	$	3,213,128	5

5) Acquisition of property, plant and equipment
CHSI	$	174,478	2	$	187,788	2
DHT		25,465	—		—	—
TISE		19,879	—		214,625	2
CHTG		16,470	—		21,770	—
Others		6,057	—		268	—

	$	242,349	2	$	424,451	4

Chunghwa has entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the ST-2 satellite. This lease term is 15 years and the total contract value is approximately $6,000,000 thousand (SGD260,723 thousand). The Company has prepaid $1,995,294 thousand which was classified as other assets-others. As of June 30, 2010, the ST-2 satellite is still under construction.

The Company has leased property to LED since April 2010. The leased term is 15 years and the rent is charged monthly.

Chunghwa sold the land with a carrying value of $936,016 thousand to Light Era Development Co., Ltd. (“LED”) at the price of $2,421,932 thousand in 2008. However, since the gain on disposal of land amounting to $1,485,916 thousand is unrealized, the gain was recognized as deferred credit - profit on intercompany transactions, and will not be recognized as revenue till the gain is realized in the future.

Chunghwa sold the land with a carrying value of $378,927 thousand to LED at price of $207,030 thousand in 2008 and resulted in a disposal loss amounting to $171,897 thousand. The disposal loss on land is unrealized and the unrealized loss is included in other assets - others. The unrealized loss is not recognized in earnings until it is sold to the third party and realized in the future.

The foregoing transactions with related parties were conducted as arm’s length transactions, except for the transactions with SENAO, CHIEF, CIYP, LED and IFE were determined in accordance with mutual agreements.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

24. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

As of June 30, 2010, in addition to those disclosed in other notes, Chunghwa’s remaining commitments under non-cancellable contracts with various parties were as follows:

a.	Acquisition of land and buildings of $119,565 thousand.

b.	Acquisition of telecommunications equipment of $17,409,406 thousand.

c.	Contracts to print billing, envelopes and telephone directories of $93,976 thousand.

d.	Chunghwa also has non-cancellable operating leases covering certain buildings, computers, computer peripheral equipment and operating system software under contracts that expire in various years. Future lease payments were as follows:


Year	Amount
2010 (from July 1, 2010 to December 31, 2010)	$	955,898
2011		1,538,525
2012		1,145,633
2013		749,906
2014 and thereafter		857,860

A commitment to contribute $2,000,000 thousand to a Piping Fund administered by the Taipei City Government, of which $1,000,000 thousand was contributed by Chunghwa on August 15, 1996 (classified as long-term investment - other monetary assets). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government. Based on Chunghwa’s understanding of the Piping Fund terms, if the project is considered to be no longer necessary by the ROC government, Chunghwa will receive back its proportionate share of the net equity of the Piping Fund upon its dissolution. Chunghwa does not know when its contribution to the Piping Fund will be returned; therefore, Chunghwa did not discount the face amount of its contribution on the Piping Fund.

A portion of the land used by Chunghwa during the period July 1, 1996 to December 31, 2004 was co-owned by Chunghwa and Taiwan Post Co., Ltd. (the former Chunghwa Post Co., Ltd. directorate General of Postal Service). In accordance with the claims process in Taiwan, on July 12, 2005, the Taiwan Taipei District Court sent a claim notice to Chunghwa to reimburse Chunghwa Post Co., Ltd. in the amount of $767,852 thousand for land usage compensation due to the portion of land usage area in excess of Chunghwa’s ownership and along with interest calculated at 5% interest rate from June 30, 2005 to the payment date. Chunghwa stated that both parties have the right to use co-management land without consideration. Chunghwa Post Co., Ltd. can not request payment for land compensation. Furthermore, Chunghwa believes that the computation used to derive the land usage compensation amount is inaccurate because most of the compensation amount has expired as result of the expiration clause. Therefore, Chunghwa filed an appeal at the Taiwan Taipei District Court. On March 30, 2009, the Taiwan Taipei District Court rendered its judgment that Chunghwa only need to pay $16,870 thousand along with interest calculated at 5% per annum from July 23, 2005 and 4% of the court fees as the court judgment compensation. However, Chunghwa Post Co., Ltd. did not accept the judgment and filed an appeal at Taiwan High Court. Chunghwa also filed an appeal at the Taiwan High Court within the statutory period. On April 7, 2010, the Taiwan High Court rendered its judgment, ruling that we need to pay $23,284 thousand as compensation in addition to the $16,870 thousand from the Taiwan Taipei District Court judgment, along with interest calculated at 5% per annum from July 23, 2005 to the payment date and 12.5% of Chunghwa Post Co., Ltd.’s court fees from its original suit and subsequent appeal as compensation. Chunghwa has filed an appeal at the Supreme Court of the Republic of China within the statutory period.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

25. FAIR VALUES OF FINANCIAL INSTRUMENTS

a.	Carrying amount and fair value of financial instruments were as follows:


	June 30
	2010				2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	87,041,371	$	87,041,371	$	78,572,933	$	78,572,933
Financial assets at fair value through profit or loss		—		—		22,423		22,423
Available-for-sale financial assets		5,599,108		5,599,108		16,354,375		16,354,375
Held-to-maturity financial assets - current		1,190,089		1,190,089		670,541		670,541
Trade notes and accounts receivable, net		11,191,243		11,191,243		10,300,053		10,300,053
Receivables from related parties		305,995		305,995		217,058		217,058
Other current monetary assets		2,653,656		2,653,656		3,246,786		3,246,786
Financial assets carried at cost		2,294,648		—		2,236,048		—
Held-to-maturity financial assets - noncurrent		6,948,228		6,948,228		4,536,191		4,536,191
Other noncurrent monetary assets		1,000,000		1,000,000		1,000,000		1,000,000
Refundable deposits		1,389,649		1,389,649		1,288,994		1,288,994
Liabilities
Financial liabilities at fair value through profit or loss		23,656		23,656		—		—
Trade notes and accounts payable		5,724,762		5,724,762		5,608,657		5,608,657
Payables to related parties		1,536,006		1,536,006		1,464,771		1,464,771
Accrued expenses		11,169,742		11,169,742		12,939,389		12,939,389
Dividends Payable		39,369,041		39,369,041		37,138,775		37,138,775
Amounts collected in trust for others (included in “other current liabilities”)		2,294,417		2,294,417		2,268,896		2,268,896
Payables to constructors (included in “other current liabilities”)		1,472,126		1,472,126		2,012,710		2,012,710
Payables to equipment suppliers (included in “other current liabilities”)		1,520,387		1,520,387		1,247,747		1,247,747
Refundable customers’ deposits (included in “other current liabilities”)		1,067,024		1,067,024		1,012,910		1,012,910
Customers’ deposits		5,886,625		5,886,625		6,047,305		6,047,305

b.	Methods and assumptions used in the estimation of fair values of financial instruments:

The fair values of certain financial instruments recognized in the balance sheet generally correspond to the market prices of the financial assets. Because of the short maturities of these instruments, the carrying value represents a reasonable basis to estimate fair values. This method does not apply to the financial instruments discussed in Notes 2 and 3 below.

If the financial instruments have quoted market prices in an active market, the quoted market prices are viewed as fair values. If the market prices of the available-for-sale financial assets are not readily available, valuation techniques are used incorporating estimates and assumptions that are consistent with prevailing market conditions.

Financial assets carried at cost are investments in nonlisted shares, which have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Fair values of financial assets and liabilities using quoted market prices or valuation techniques were as follows:


	Amount Based on Quoted Market Price				Amount Determined Using Valuation Techniques
	June 30				June 30
	2010		2009		2010		2009
Assets
Financial assets at fair value through profit or loss	$	—	$	—	$	—	$	22,423
Available-for-sale financial assets		5,599,108		16,354,375		—		—
Hedging derivative financial assets (classified as other current monetary assets)		—		—		—		17,374
Liabilities
Financial liabilities at fair value through profit or loss		—		—		23,656		—

d.	Information about financial risks

Market risk

The foreign exchange rate fluctuations would result in Chunghwa’s foreign-currency-dominated assets and liabilities, outstanding currency swap contracts exposed to rate risk.

The financial instruments categorized as available-for-sale financial assets are mainly listed stocks and open-end mutual funds. Therefore, the market risk is the fluctuations of market price. In order to manage this risk, Chunghwa would assess the risk before investing; therefore, no material market risk is anticipated.

Credit risk

Credit risk represents the potential loss that would be incurred by Chunghwa if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties of the aforementioned financial instruments are reputable financial institutions and corporations. Management does not expect Chunghwa’s exposure to default by those parties to be material.

Liquidation risk

Chunghwa has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments. Therefore, the liquidation risk is low.

The financial instruments of the Company categorized as available-for-sale financial assets are publicly-traded, easily converted to cash. Therefore, no material liquidation risk is anticipated. The financial instruments categorized as financial assets carried at cost are investments that do not have a quoted market price in an active market. Therefore, material liquidation risk is anticipated.

Cash flow interest rate risk

Chunghwa engages in investments in fixed-interest-rate debt securities. Therefore, cash flows from such securities are not expected to fluctuate significantly due to changes in market interest rates.

In addition, Chunghwa engages in investments in floating-interest-rate debt securities. The changes in market interest rate would impact the floating-interest rate; therefore, cash flows from such securities are expected to fluctuate due to changes in market interest rates.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

e.	Fair value hedge

Chunghwa entered into currency swap contracts to hedge the fluctuation in exchange rates of beneficiary certificate denominated in foreign currency. No transaction met the criteria for hedge accounting for the six months ended June 30, 2010. The transaction was assessed as highly effective for the six months ended June 30, 2009.

Outstanding currency swap contracts for hedge as of June 30, 2009 were as follows:


	Currency	Maturity Period	Contract Amount (In Thousands)
Currency swap contracts	US$/NT$	2009.07	US$30,000/NT$984,471

As of June 30, 2009, the currency swap contracts measured at fair value result in hedging derivative financial assets of $17,374 thousand (classified as other current monetary assets).

According to the regulations of Securities and Futures Bureau, Chunghwa should disclose the derivative transactions of Chunghwa’s investees, SENAO and CHI, which was as follows:

Holding period and contract amounts

SENAO entered into a forward exchange contract for the six months ended June 30, 2010 and 2009 to reduce the exposure to foreign currency risk.

Outstanding forward exchange contracts as of June 30, 2010 and 2009 were as follows:


	Currency	Maturity Period	Contract Amount (In Thousands)
June 30, 2010
Buy	NT$/US$	2010.07	NT$	76,956
June 30, 2009
Buy	NT$/US$	2009.07	NT$	183,773

Outstanding index future contracts of CHI on June 30, 2010 were as follows:


	Maturity Period	Units	Contract Amount (In Thousands)
TAIEX futures	2010.07	12	NT$	17,198

Market risk

The foreign exchange rate fluctuations would result in SENAO’s foreign-currency-dominated assets and liabilities and open forward exchange contracts exposed to rate risk.

The fluctuations of market price would result in CHI’s index future contracts exposed to price risk.

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Credit risk

Credit risk represents the potential loss that would be incurred by SENAO and CHI if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the aforementioned financial instruments are reputable financial institutions. Management does not expect SENAO’s and CHI’s exposure to default by those parties to be material. The largest amount of exposure to default by those parties of the financial instruments of SENAO and CHI is the same as carrying value.

Liquidation risk

SENAO and CHI have sufficient operating capital to meet cash needs upon settlement of derivative financial instruments. Therefore, the liquidation risk is low.

26. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFC for Chunghwa and its investees:

a.	Financings provided: Please see Table 1.

b.	Endorsement/guarantee provided: Please see Table 2.

c.	Marketable securities held: Please see Table 3.

d.	Marketable securities acquired and disposed of at costs or prices at least $100 million or 20% of the paid-in capital: Please see Table 4.

e.	Acquisition of individual real estate at costs of at least $100 million or 20% of the paid-in capital: None.

f.	Disposal of individual real estate at prices of at least $100 million or 20% of the paid-in capital: None.

g.	Total purchases from or sales to related parties amounting to at least $100 million or 20% of the paid-in capital: Please see Table 5.

h.	Receivables from related parties amounting to $100 million or 20% of the paid-in capital: Please see Table 6.

i.	Names, locations, and other information of investees on which the Company exercises significant influence: Please see Table 7.

j.	Financial transactions: Please see Notes 5 and 25.

k.	Investment in Mainland China: Please see Table 8.

27. SEGMENT FINANCIAL INFORMATION

Segment information: Please see Table 9.

TABLE 1

CHUNGHWA TELECOM CO., LTD.

FINANCINGS PROVIDED

SIX MONTHS ENDED JUNE 30, 2010

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

No.

Financing
Company

Counter-party

Financial
Statement
Account

Maximum
Balance for
the Year

Ending
Balance

Interest
Rate
(Note 5)

Type of
Financing
(Note 2)

Transaction
Amount

Reason for
Short-term
Financing

Allowance
for Bad
Debt

Collateral

Financing
Limit for
Each
Borrowing
Company
(Note 3)

Financing
Company’s
Financing
Amount Limit
(Note 4)

Item

Value

Chunghwa Telecom Singapore Pte., Ltd.

ST-2 Satellite Ventures Pte., Ltd.

Other receivables

543,303

(SGD 23,913

)

—

6.38

(Note 6)

—

1,426,836

(SGD 62,063

)

1,426,836

(SGD 62,063

)


Note 1:		Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

		a. “0” for the Company. b. Subsidiaries are numbered from “1”.

Note 2:		Reasons for financing are as follows:

		a. Business relationship. b. For short-term financing.

Note 3:		The upper limit of loans lending to any other party is no more than 100% of the net value of the latest financial statements of the lender.

Note 4:		The upper limit of loans lending to all other parties is no more than 100% of the net value of the latest financial statements of the lender.

Note 5:		It equals to the prime rate of Singapore plus 1%

Note 6:		Chunghwa Telecom Singapore Pte., Ltd. signed the joint venture contract with SingTelSat Pte., Ltd. to establish ST-2 Satellite Ventures Pte., Ltd. which mainly engages in the installation and the operation of ST-2 telecommunications satellite. The amount was collected on April 1, 2010.

TABLE 2

CHUNGHWA TELECOM CO., LTD.

ENDORSEMENTS/GUARANTEES PROVIDED

SIX MONTHS ENDED JUNE 30, 2010

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)


No.	Endorsement/Guarantee Provider	Guaranteed Party		Limits on Endorsement/ Guarantee Amount Provided to Each Guaranteed Party		Maximum Balance for the Year		Ending Balance		Amount of Endorsement/ Guarantee Collateralized by Properties		Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements		Maximum Endorsement/ Guarantee Amount Allowable (Note 3)
No.	Endorsement/Guarantee Provider	Name	Nature of Relationship (Note 2)			Maximum Balance for the Year		Ending Balance						Maximum Endorsement/ Guarantee Amount Allowable (Note 3)
25	Yao Yong Real Property Co., Ltd.	Light Era Development Co., Ltd.	d	$	3,756,752	$	3,360,000	$	3,360,000	$	3,360,000	0.9	%	$	3,756,752


Note 1:		Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

		a. “0” for the Company. b. Subsidiaries are numbered from “1”.

Note 2:		Relationships between the endorsement/guarantee provider and the guaranteed party:

		a. Trading partner. b. Majority owned subsidiary. c. The Company and subsidiary owns over 50% ownership of the investee company. d. A subsidiary jointly owned by the Company and the Company’s directly-owned subsidiary. e. Guaranteed by the Company according to the construction contract. f. An investee company. The guarantees were provided based on the Company’s proportionate share in the investee company.

Note 3:		The maximum amount of endorsement or guarantee amounts is up to 200% of the asset value of the latest financial statements of Yao Yong Real Property Co., Ltd.

TABLE 3

CHUNGHWA TELECOM CO., LTD.

MARKETABLE SECURITIES HELD

JUNE 30, 2010

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)


No.	Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	June 30, 2010								Note
No.	Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	Shares (Thousands/ Thousand Units)	Carrying Value (Note 6)			Percentage of Ownership	Market Value or Net Asset Value			Note
0	Chunghwa Telecom Co., Ltd.	Stocks
		Senao International Co., Ltd.	Subsidiary	Investments accounted for using equity method	71,773	$	1,263,026		28	$	3,703,495		Note 5
		Light Era Development Co., Ltd.	Subsidiary	Investments accounted for using equity method	300,000		2,891,613		100		2,891,970		Note 1
		Chunghwa Investment Co., Ltd.	Subsidiary	Investments accounted for using equity method	178,000		1,653,215		89		1,726,651		Note 1
		Chunghwa Telecom Singapore Pte., Ltd.	Subsidiary	Investments accounted for using equity method	61,869		1,426,836		100		1,426,836		Note 1
		Chunghwa System Integration Co., Ltd.	Subsidiary	Investments accounted for using equity method	60,000		707,252		100		631,003		Note 1
		Taiwan International Standard Electronics Co., Ltd.	Equity-method investee	Investments accounted for using equity method	1,760		508,841		40		693,957		Note 1
		CHIEF Telecom Inc.	Subsidiary	Investments accounted for using equity method	37,942		486,227		69		433,964		Note 1
		Viettel-CHT Co., Ltd.	Equity-method investee	Investments accounted for using equity method	—		273,140		30		273,140		Note 1
		InfoExplorer Co., Ltd.	Subsidiary	Investments accounted for using equity method	22,498		251,982		49		204,343		Note 1
		Donghwa Telecom Co., Ltd.	Subsidiary	Investments accounted for using equity method	51,590		239,338		100		239,338		Note 1
		Chunghwa International Yellow Pages Co., Ltd.	Subsidiary	Investments accounted for using equity method	15,000		176,704		100		176,704		Note 1
		Skysoft Co., Ltd.	Equity-method investee	Investments accounted for using equity method	4,438		87,234		30		47,867		Note 1
		Chunghwa Telecom Global, Inc.	Subsidiary	Investments accounted for using equity method	6,000		75,974		100		99,201		Note 1
		Spring House Entertainment Inc.	Subsidiary	Investments accounted for using equity method	5,996		64,866		56		49,297		Note 1
		KingWaytek Technology Co., Ltd.	Equity-method investee	Investments accounted for using equity method	1,703		64,834		33		16,617		Note 1
		So-net Entertainment Taiwan Co., Ltd.	Equity-method investee	Investments accounted for using equity method	3,429		26,155		30		8,300		Note 1
		Chunghwa Telecom Japan Co., Ltd.	Subsidiary	Investments accounted for using equity method	1		12,667		100		16,877		Note 1
		New Prospect Investments Holdings Ltd. (B.V.I.)	Subsidiary	Investments accounted for using equity method	—	(US$	— 1 dollar	)	100	(US$	— 1 dollar	)	Note 3
		Prime Asia Investments Group Ltd. (B.V.I.)	Subsidiary	Investments accounted for using equity method	—	(US$	— 1 dollar	)	100	(US$	— 1 dollar	)	Note 3
		Taipei Financial Center Corp.	—	Financial assets carried at cost	172,927		1,789,530		12		1,373,643		Note 2

(Continued)


No.	Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	June 30, 2010						Note
No.	Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	Shares (Thousands/ Thousand Units)	Carrying Value (Note 6)		Percentage of Ownership	Market Value or Net Asset Value		Note
		Industrial Bank of Taiwan II Venture Capital Co., Ltd. (IBT II)	—	Financial assets carried at cost	20,000		200,000	17		219,168	Note 2
		Global Mobile Corp.	—	Financial assets carried at cost	12,696		127,018	11		96,208	Note 2
		iD Branding Ventures	—	Financial assets carried at cost	7,500		75,000	8		72,928	Note 2
		Innovation Works Development Fund, L.P.	—	Financial assets carried at cost	—		38,035	13		38,035	Note 2
		RPTI Intergroup International Ltd.	—	Financial assets carried at cost	4,765		34,500	10		34,532	Note 2
		CQi Energy Infocom Inc.	—	Financial assets carried at cost	2,000		20,000	18		4,220	Note 2
		Innovation Works Limited	—	Financial assets carried at cost	333		10,565	2		10,565	Note 2
		Essence Technology Solution, Inc.	—	Financial assets carried at cost	2,000		—	9		1,078	Note 2
		Beneficiary certificates (mutual fund)
		JPM (Taiwan) Global Balanced Fund	—	Available-for-sale financial assets	14,161	$	200,000	—	$	205,126	Note 4
		JPM (Taiwan) JF Balanced Fund	—	Available-for-sale financial assets	2,462		50,000	—		47,618	Note 4
		Fuh-Hwa Aegis Fund	—	Available-for-sale financial assets	14,000		184,452	—		162,387	Note 4
		AGI Global Quantitative Balanced Fund	—	Available-for-sale financial assets	10,000		116,365	—		106,900	Note 4
		Capital Value Balance Fund	—	Available-for-sale financial assets	8,000		141,776	—		135,486	Note 4
		Fuh Hwa Life Goal Fund	—	Available-for-sale financial assets	6,000		90,037	—		91,033	Note 4
		Fuh Hwa Asia Pacific Balanced	—	Available-for-sale financial assets	7,764		100,000	—		81,910	Note 4
		Capital Asia-Pacific Mega - Trend Fund	—	Available-for-sale financial assets	15,074		200,000	—		193,544	Note 4
		PCA Asia Pac Infrastructure Fund	—	Available-for-sale financial assets	3,061		30,000	—		29,534	Note 4
		PineBridge Flagship Glb Bal Fund of Funds	—	Available-for-sale financial assets	25,679		350,000	—		337,424	Note 4
		Franklin Templeton Global Bond Fund of Funds	—	Available-for-sale financial assets	17,984		208,018	—		228,680	Note 4
		Cathay Global Aggressive Fund of Funds	—	Available-for-sale financial assets	15,570		210,000	—		182,477	Note 4
		Polaris Global Emerging Market Funds	—	Available-for-sale financial assets	13,603		200,000	—		179,555	Note 4
		HSBC Global Bonds Funds	—	Available-for-sale financial assets	22,838		250,000	—		266,471	Note 4
		Fuh Hwa Global Fixed Income FOFs Fund	—	Available-for-sale financial assets	15,594		190,000	—		194,145	Note 4
		PCA Asia Pacific REITs-A	—	Available-for-sale financial assets	7,849		50,000	—		50,235	Note 4
		HSBC GIF Glbl Emerging Markets Bd A Inc	—	Available-for-sale financial assets	273		155,112	—		163,084	Note 4
		Templeton Global Bond A Acc $	—	Available-for-sale financial assets	289		210,001	—		216,995	Note 4
		PIMCO Global Investment Grade Credit - Ins H Acc	—	Available-for-sale financial assets	398		161,575	—		170,009	Note 4
		MFS Meridian Funds - Global Equity Fund (A1 Class)	—	Available-for-sale financial assets	253		262,293	—		200,928	Note 4
		Fidelity Fds International	—	Available-for-sale financial assets	128		163,960	—		111,671	Note 4
		Fidelity Fds America	—	Available-for-sale financial assets	937		163,960	—		123,204	Note 4
		JPMorgan Funds - Global Dynamic Fund (B)	—	Available-for-sale financial assets	303		165,640	—		114,762	Note 4
		MFS Meridian Funds - Research International Fund (A1 share)	—	Available-for-sale financial assets	173		131,920	—		88,175	Note 4
		Fidelity Fds Emerging Markets	—	Available-for-sale financial assets	137		116,066	—		76,071	Note 4
		Credit Suisse Equity Fund (Lux) Global Resources	—	Available-for-sale financial assets	10		130,402	—		76,343	Note 4
		Schroder ISF - BRIC Fund - A1 Acc	—	Available-for-sale financial assets	31		197,071	—		176,575	Note 4
		Parvest Europe Convertible Bond Fund	—	Available-for-sale financial assets	71		398,787	—		326,243	Note 4
		JPMorgan Funds - Global Convertibles Fund (EUR)	—	Available-for-sale financial assets	868		491,450	—		394,630	Note 4
		Schroder ISF Euro Corp. Bond A	—	Available-for-sale financial assets	260		190,098	—		159,223	Note 4
		Fidelity Euro Balanced Fund	—	Available-for-sale financial assets	328		209,085	—		151,100	Note 4
		Fidelity Fds World	—	Available-for-sale financial assets	180		105,061	—		64,689	Note 4
		Fidelity Fds Euro Blue Chip	—	Available-for-sale financial assets	101		91,117	—		51,596	Note 4
		MFS Meridian Funds - European Equity Fund (A1 share)	—	Available-for-sale financial assets	112		117,711